On November 9, Mr. Najib Razak, the Prime Minister and Finance Minister, announced at the Multimedia Super Corridor implementation council meeting that Malaysia was aiming for 9 per cent average annual GDP growth rate until 2020. Realising later that the numbers were absurd, the government went into damage control mode. Immediately, the local media edited the premier’s statement to 6 per cent. The next day, the Minister in the Prime Minister’s Department, in charge of the Economic Planning Unit, the government’s powerful pinnacle agency on economic matters, noted that Malaysia was capable of achieving 5.4 per cent GDP growth rates annually over the next ten years to achieve the objective of becoming a high income economy by 2020. On November 11, in the Lower House (Dewan Rakyat), the Deputy Finance Minister stated that Malaysia is expected to recover from the current recession and was projected to grow at between two to three per cent in 2010. Such is the uncertainty of Malaysia’s economic future.
Malaysia’s economic performance has never averaged 9 per cent over the course of a decade, even in the best of times, and has been on the downtrend since the East Asian Financial Crisis of 1997/98. Average growth was around 6.7 per cent in the 60s; 7.7 per cent in the 70s; 5.9 per cent in the 80s; 7.3 per cent in 90s and 5.2 per cent for the period 2000 – 2006 (Yusuf & Nabeshima, 2009). It is therefore unrealistic given the current global economic situation and, more importantly, Malaysia’s weakening economic fundamentals that it would achieve even 5 per cent GDP growth. The Economist Intelligence Unit (Sept 15, 2009) projects that Malaysia’s GDP is expected to grow at an annual average of 4.6 per cent in 2011-2020. The World Bank’s most recent assessment for Malaysia, which was more hopeful, notes that the Malaysian economy is projected to grow at 4.1 per cent in 2010. In the medium term (2011-2012) growth is projected at around 6 per cent conditional on the country undertaking structural reforms. Herein lies Malaysia’s challenge.
Since 1991, Vision 2020 – Mahathir’s vision to transform Malaysia into a developed economy – has been Malaysia’s long term objective. There is consensus that his target will not be met as the required structural reforms were not taken. Malaysia is still a highly protected economy – especially in the services and resources sectors with a perverse economic model that benefits a particular class of people within the ruling political party. This has severely curtailed efficiency and dampened economic growth.
Najib Razak was forced to introduce a new vision – to move Malaysia into the category of high income economies – to maintain political legitimacy for the ruling party. To achieve this target, Malaysia would need to double its current per capita income of US7, 990 to US15, 000 by 2020. This would require restructuring the Malaysian economy; a job that would naturally impact on the Malaysian political and social situation. Najib himself has admitted that this is a Herculean task. This may explain why his administration has not been able to provide a policy document or a coherent argument on what the required structural adjustments are and how they will be implemented. Najib has so far made ad hoc announcements of liberalisation measures: some genuine, others smoke-screens and some even overturned in the face of political pressure.
Structural adjustments will involve the dislocation of certain groups, industries or sectors. The welfare of some people will definitely be affected. However, if the nation benefits as a whole, the groups that are dislocated will be compensated and the nation will be better off as a whole. This is the central problem in Najib’s efforts to secure its economic future by improving competitiveness through liberalisation – an inability to define the “national interest”. Over the years, the increasing strength of the United Malay National Organisation (UMNO) had defined the “national interest” as ensuring the welfare of the community aligned to the ruling party. They are predominantly but not exclusively Malay elites (UMNOputras) who have benefited tremendously from affirmative action policies. While the policy has been applauded in general for maintaining stability, it has clearly come at the expense of the nation as a whole.
For Malaysia to become a high income economy, the World Bank’s recommendations were that the Malaysian economy specialise further, improve workforce skills, make growth more inclusive, and bolster public finance. This obviously requires that “national interest” be defined broadly – to include all Malaysians and reverse policies that benefit a select few. Therefore, Malaysia’s economic future ultimately lies in Najib’s ability to put the interest of Malaysians ahead of the supporters of his political party or for Malaysians to vote in an alternative Prime Minister who would do just that.
This article first appeared in New Mandala.